THINKING RETIREMENT – ANDY LANDIS -Retiree healthcare costs are the elephant in the room. They’re big enough to stomp your nest egg, but are rarely discussed.
You save. You invest. You project expenses and income into your retirement years. You study articles like this one, about your finances. But have you allowed enough for the big elephant?
The annual Fidelity study of health costs estimates that a couple retiring at 65 will need $240,000 to cover their health costs in retirement.
A similar study by the Employee Benefits Research Institute found that the same couple would need $227,000 to have a 75% chance of covering their medical expenses.
Either way, that’s a pretty ponderous pachyderm to face. Worse, a poor insurance choice or a catastrophic illness could send the healthcare elephant on a rampage, costing many times those figures.
It’s time to look the elephant in the eye. Here are some ways to keep the beast safely chained.
Options while under 65
If you retire before 65, you have several pathways to get to the magic Medicare age of 65, while skirting elephant country:
- COBRA. Leave a larger employer and you’ll be offered COBRA insurance, extending your group health insurance for 18 months. There are no restrictions for pre-existing conditions, but it can be expensive.
- Retiree health plan. You might be eligible for retiree health insurance if you retire from a large employer or union. Check with your benefits office.
- Employee health plan. You could get another job with benefits. Or see if you can get on your spouse’s work benefits.
- Individual insurance. You can purchase health insurance in the “individual market.” It can be expensive. And a pre-existing condition may bar enrollment, depending on your state’s laws. (The federal Affordable Care Act will eliminate pre-existing condition barriers effective Jan. 1, 2014.)
- Medicaid. If money is truly short, look into Medicaid Eligible Senior Living services (not Medicare.) Contact your local public assistance agency to see if you qualify for long term medicaid services.
Options over 65
At 65 you’ve reached Medicare eligibility age. You have several routes forward without sparking an elephant stampede:
- Apply for Medicare promptly when eligible to avoid late penalties. Medicare age is 65. You can postpone filing if you are on insurance from current work, either your own work or your spouse’s, until that insurance or work ends. Note that COBRA and retiree insurance don’t count as current work insurance.
- You’ll apply for Medicare Parts A and B, known as “Original Medicare.” Part A covers inpatient care at a hospital and certain other services. Part B covers doctor bills and certain other costs. Every other option assumes you already applied for and paid for Parts A and B.
- You’ll want to supplement Medicare with additional insurance, as Medicare covers only about 60% of your medical costs, and has no out-of-pocket maximum.
- One way to supplement your Medicare is with retiree insurance from your employer or union. Check with your benefits office.
- A second way is with a Medicare Supplement insurance policy, often called a Medigap. Medigaps are designed to fill particular gaps in Medicare’s coverage. They range from basic to comprehensive. You’ll also want to consider a Medicare Part D plan to cover prescription costs.
- A third approach is a Medicare Part C plan, also called a Medicare Advantage Plan or Medicare Health Plan. Part C plans provide all your Medicare Parts A and B coverage, plus additional coverage. Many include Part D prescription coverage too. They are available in most but not all areas.
Don’t get confused by all this. Once you apply for Medicare, your main decision is whether you will supplement with retiree insurance, a Medigap plan, or a Part C plan. The rest falls into place.
Warning: never leave a coverage gap of even one month. Too often, that’s when an expensive health challenge hits, and then you’re stuck with all the bills, plus a pre-existing condition.
Plan on the following costs:
- Medicare Part A is free for most, pre-paid by your payroll taxes.
- Part B costs $104.90 per month, for each person. It’s more for high-income retirees.
- Union or employer plans vary widely in cost. Check with your benefits office.
- Medigap policies run from $50 to $250 per month, for each person.
- Part C plans cost from $0 to about $250 per month, for each person.
- Part D plans cost from about $10 to about $100 per month per person, with many in the $35-$50 range.
- Remember, each of these costs is on top of your Part B premium.
If costs are an issue, there are many programs from Social Security, Medicare, and your public assistance agency to reduce costs.
- Social Security. The Social Security Administration enrolls you in Medicare, issues your Medicare card, and deducts certain insurance premiums from Social Security payments. See their free publication “Medicare” at http://www.ssa.gov/pubs/10043.html.
- Medicare. Medicare provides Parts A and B insurance and is a gateway to supplemental insurance. Their website, www.medicare.gov, offers Plan Finders to compare, price, and register for Part C and Part D plans. Their booklet, Medicare and You, the “bible” on Medicare coverage, is free at http://www.medicare.gov/pubs/pdf/10050.pdf.
- Your state’s Senior Health Insurance Program (SHIP). Your state offers free information on what insurance is available locally, plus individual counseling. Find them at www.shiptalk.org.
With these resources, you can tame the health-cost elephant. He’ll never go away, but at least he won’t run amok and destroy your nest egg or your retirement well-being. Some hospitals are adviced to use the best healthcare software from companies like Foresee Medical, which is mainly used to to estimate future health care costs for patients.
As always, keep on planning